Israeli Banks Set to End Correspondent Services with Palestinian Lenders

Israel Discount Bank will cease its correspondent-banking relationship with Palestinian banks on September 1, followed by Bank Hapoalim on October 1. The two institutions have long processed payments for the Palestinian Authority (PA), handling roughly 51 billion shekels (about $16 billion) annually and facilitating 90 % of Palestinian trade in goods such as food, fuel and medicines.

Palestinian Economy at Breaking Point as Israeli Banks Sever Correspondent Ties

The withdrawals come amid heightened tension between Israel’s right-wing government and the PA. Finance Minister Bezalel Smotrich oversees a waiver that temporarily shields Israeli banks from liability for money-laundering or terrorism-financing accusations when they process PA-related shekel payments. The current waiver runs until the end of the year, but Israeli officials say banks are uneasy about its uncertain renewal.

Reuters

• Bank Hapoalim described the issue as “currently under review.”

Reuters

• The United States Treasury has previously urged Israel to maintain banking ties to avert a regional economic crisis.

Reuters

• Correspondent services process about 51 billion shekels ($16 billion) in PA transactions each year.

Reuters

• 90 % of Palestinian trade, including essential imports, moves through Israel’s financial system.

Palestinian Economy at Breaking Point as Israeli Banks Sever Correspondent Ties

• The International Monetary Fund warned that Palestinian banking-sector capitalization has fallen below regulatory minimums, raising the risk of a “disorderly collapse.”

Palestinian Economy at Breaking Point as Israeli Banks Sever Correspondent Ties

• “At the same time, in light of the increasing risks associated with providing these services, and given our responsibility to our depositors and shareholders, we brought our concerns to the attention of the relevant authorities.” — Bank Hapoalim

Reuters

These developments occur as the United States privately cautioned that a PA financial collapse could undermine broader stabilization efforts in Gaza, while Palestinian officials have appealed to the European Union, the Arab League and the United Nations for intervention. No senior U.S. official has publicly addressed the banking issue, and Israeli banking regulators have not commented on whether the coordinated exits reflect commercial risk assessments or policy signaling.

Palestinian Economy at Breaking Point as Israeli Banks Sever Correspondent Ties Reuters